Student loan repayments are rising for the next cohort of students in England as the repayment threshold is to be dropped.
The government said it’s making the student loan system “fairer for taxpayers and for students”, but education experts have said the changes are “regressive” and will make low to middle income graduates “significantly worse off”.
But why is this the case and how much more will students be paying each month?
FactCheck takes a look.
How will monthly loan repayments change?
When you repay your loan depends on when you started your course, and how much you repay depends on your income.
Current full-time undergraduate university students will be on repayment plan 2, but new students will be on repayment plan 5.
Note: If you started your course before 1 September 2012 (repayment plan 1) the threshold is lower, but course fees were also a lot lower. For the purposes of this article, we’ll be comparing plan 2 and the new plan 5.
Repayment Plan 2
If you started your course between 1 September 2012 and 31 July 2023 on the ‘repayment plan 2’, you will only start making 9 per cent repayments over the threshold of £27,295 a year, £2,274 a month or £524 a week in the UK.
Repayment Plan 5
If you’re starting on an undergraduate university course or an Advanced Learner Loan course on or after 1 August 2023, the new ‘repayment plan 5’ means students will pay 9 per cent of their income over the new lower repayment threshold of £25,000 a year, £2,083 a month or £480 a week in the UK.
This means you’ll start paying your loan back at a lower level and monthly payments will be higher at every level.
This is how monthly repayments will change:
Students on the new plan won’t be expected to make repayments until April 2026, but the length of the repayment period is changing from until the loan is cleared, or 30 years, whichever comes first, to until the loan is cleared, or 40 years, whichever comes first.
And the interest added to loans is also changing.
Those on plan 2 pay RPI (retail price index) inflation plus 3 per cent interest while studying, and between inflation and inflation plus 3 per cent, depending on income, from the April after studies finish.
This will change to just the rate of RPI inflation for new students.
A Department for Education (DfE) spokesperson told FactCheck that the government has cut interest rates to RPI only so that borrowers on the new Plan 5 “will not repay more than they originally borrowed over the lifetime of their loans, when adjusted for inflation”.
Will the new system be ‘fairer’?
The DfE told FactCheck the new system will be “fairer for taxpayers and for students, keeping it sustainable long-term”. But this is disputed by education experts.
Dr Conlon, a Partner at London Economics, co-authored a recent report assessing the impact of the proposed loan changes.
He told FactCheck the analysis shows the changes are “deeply regressive” and that the new plan will make most low to middle income graduates “significantly worse off” as they will actually pay more over their lifetimes due to the lower repayment threshold and longer repayment period.
The changes to interest rates also mean higher earning graduates – in particular men who will typically be on higher salaries – “will be better off” because they will be able to pay back their loans faster than those on lower incomes.
This is echoed by Chloe Field, Vice President of Higher Education at the National Union of Students (NUS), who said that for women, only the very top earners will benefit from these changes, but “most other female graduates will end up paying more money over their lifetime because of the lower repayment threshold and longer repayment period”.
And despite the DfE saying the new system will be “fairer” for students, its own equality assessment of the new plan found that female graduates will indeed be negatively impacted due to the increased loan term and “their typically lower-than-average lifetime earnings”.
Borrowers of a white or black ethnicity from disadvantaged backgrounds, or who live in the North, Midlands or South West, are also “likely to see some negative impact with increased lifetime repayments under the reforms”, as well as young borrowers.
The DfE also told FactCheck the reforms will mean “more than half of borrowers will repay their loans in full, compared to the current rate of 20 per cent”.
But its assessment said the groups that “may be more affected by these changes” will “typically make lower repayments” than higher earners and therefore be “less likely to repay their loans in full”, counteracting the new system’s aim of more people paying back loans in full.